This is to let you know of a private tax ruling issued by the Director of National Revenue Administration (“Authority”) on 27 December 2023 (ref. 0111-KDIB1-3.4010.650.2023.1.PC).
The ruling was about the period in which the applicant (“PL Company”) should recognise an adjustment to fees for management services provided by its German affiliate (“DE Company”) in years 2019 to 2022.
A tax inspection was held in DE Company by reference to years 2019 to 2022. The German tax authorities determined during the inspection that DE Company’s staff were engaged in services for PL Company to a greater degree than would appear from DE Company’s budgeted allocation of costs to PL Company, and ruled that the overall service fee was understated.
Following negotiations with the German tax authorities, DE Company agreed to make an adjustment to obtain the right fee amount. To do so, DE Company issued invoices in 2023 revising the fees for the years under inspection (2019-2021) and revised the 2022 fee accordingly.
The Polish Authority agreed with PL Company that it may recognise those adjustment invoices by reference to the time when it received them.
The Authority held that if the percentage allocation of DE Company’s staff involvement in the services was not properly determined until in cooperation with the German tax authorities, then the earlier fee was not at arm’s length. This means that the condition under Article 11e(1) of the CIT Act (governing transfer pricing adjustments) was not satisfied and, therefore, the special recognition rules for such adjustments (recognition by reference to the period to which they relate) did not apply. Consequently, the fee adjustment should be recognised under the general rules, i.e. when the underlying adjustment document is received.
If this issue pertains to your business and you are interested in our assistance, please contact us.
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